Don't Change That Channel In the process, an important technical marker for the markets was reached, as January's highs were eclipsed, and on much better volume than the early January rally (when many people were still away on holiday). 'Higher highs and higher lows' are a positive sign looked for by technicians to denote an upward trend, and if such a trend asserts itself then we can buy the dips with better confidence that the bottom won't fall out on us as it did for those who were bargain hunting in September and October.
Bad news is like Buckley's: It tastes awful, but it works! While we wait for the correction, there's no shortage of bad news to increase confidence that said correction is overdue. Last week Bank of Canada Governor Mark Carney predicted a deeper recession for '09 than he forecast in January (Jan. prediction 1.2 % GDP contraction, versus revised 3% contraction last week), although he still envisions a recovery in 2010 (2.5 % growth vs. Jan prediction of 3.8%). Companies continue to announce layoffs as unemployment shows no signs of slowing. GM is still driving towards bankruptcy. Insiders are selling at levels not seen since 1992. This week, swine flu is the mallet being used to sound the rally's death bell, and news that Bank of America and Citigroup need to raise additional capital following the US government's stress tests is adding to the pressure. For now, markets have been demonstrating an immunity to heavy doses of bad news, choosing confidence towards the future over a belief that the current difficulties will prevail for years to come. Shifting Correlations Ah, if only it were so simple. US banks and stock market up, gold down. Markets up, oil up, gold down. These have essentially been the correlations of the past month and a half or so. However, gold seemed to actually lead the markets out of the November lows rather than rising as they declined, so clearly all of these relationships are fluctuating as violently as sentiment. Gold is viewed as a hedge either against inflation or fear, so really it can work either way. For instance, global equity and commodity markets are looking for inflation to drive them higher. Therefore, if there is a belief that inflation will return with all the stimulus and money printing taking place, gold should rise along with the markets. Conversely, if markets and the financial system appear once again to be on the verge of collapse, investors will flock to gold as the only true asset that can hold value against currencies, stocks and real estate. For much of the current rally, gold has languished, as its fear trade value declined. Yet suddenly, last week, although markets continued rising, gold did as well. This week it is falling with them, making its current movements just seem random and volatile. Many, myself included, have noted the seasonal weakness in gold that usually runs through the summer and therefore expected it to remain quiet or even decline through the summer months. Was last week's move just a ' dead cat bounce?'
Best regards,
This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Capital Corporation (“Canaccord Capital”), this is not an official publication of Canaccord Capital and the author is not a Canaccord Capital analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Capital. |
OFFICES IN MAJOR CENTRES ACROSS CANADA. MEMBER OF ALL CANADIAN STOCK EXCHANGES AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA. MEMBER CANADIAN INVESTOR PROTECTION FUND (CIPF).
